The end of the year is a great time to conduct a full physical inventory count. You should start planning your annual physical inventory process no later than 8 weeks before the count date. You should also avoid planning around holidays when you know employees will be occupied.
Who should count the inventory
A counting team should consist of an experienced employee, paired with someone with less knowledge. Let the experienced person count and the inexperienced person record. This method will also help your inexperienced employee become more familiar with your merchandise.
Preparing the stocking area
Cleaning your stocking area is an extremely important task that gives you the perfect opportunity to make sure that every inventory item is in its proper bin or location and not floating around somewhere else. If you start out with all of your items in the proper place, it’s going to make your counts go much, much faster – and your quantities more accurate. This can also help you get in the habit of putting your parts in their correct place on a regular basis. In order to help develop this habit, you should clean your stocking area no less than two weeks before the count begins.
Executing the Count
Step 1: Break up your Counting into Small Groups
The first step in getting ready to count is to break up your counting into small groups. This eliminates your employees from becoming too overwhelmed at the thought of having to count thousands of parts all at once.
Step 2: Create a map of your stocking area
This should include every shelf, bin, drawer, receiving dock, and return area. All of the products in your inventory must be counted for this to be worth your time, and a success.
Step 3: Divide your stocking area into counting areas
Your counters should be assigned to geographic areas, not product lines. This is due to the fact that some parts located between major product lines could be missed. You should consider counting surplus areas and slow-moving products before your scheduled count. If you know that some of your seasonal products aren’t going to sell before your count, get that out of the way first, and make sure you mark the bins and shelves that are pre-counted. This will put a little less stress on your employees when the big count hits.
A couple other things you should implement into your pre-counting plan:
– Pull all parts out of inventory that are needed for your current service orders.
– Pull or ship everything on order.
– Don’t move misplaced material while you count.
– Do not fill orders or receive material during the count process.
Step 4: Start counting
When your counters are finished with a small section of bins, let your designated manager verify the counts. It’s best to first start with your items that bring in the most money and are your fastest movers. Focus on these items first, because they are the items that are most likely to contain counting errors. As soon as the counts are verified, enter them into your inventory management system or spreadsheet.
After your count is completed, you must print and review discrepancy reports in your inventory management system (if applicable).
You should also review your whole counting process and document your procedures. Meet with your employees and determine what worked, what didn’t, and what you can change for future counts. This should make your next full physical inventory count run much smoother.
If you want to break up your counting in the future, you should consider the method of cycle-counting.
Cycle-Counting
If you’re looking to ease the burden of conducting the demanding task of an annual inventory count, there is an alternative called cycle-counting. It’s a method where you take counts of different areas of your inventory spread out over the year. And the best part, it actually makes your inventory more accurate because you are paying attention to specific areas more often, rather than everything as a whole.
The best way to conduct your cycle-counting is by using the “Ranking Method.” This method implies that you count your inventory items with the larger number of dollars flowing through your inventory more often than your slower-moving products. You should break your inventory levels, or “rankings” like this:
– “A” rank items (those responsible for the top 80% of sales): count monthly or quarterly.
– “B” rank items (responsible for the next 15% of sales): count twice a year.
– “C” rank items (responsible for the next 5% of sales): count once a year.
An advantage of cycle-counting is that you can basically put the full task of inventory counting in the hands of your warehouse personnel, which is beneficial for maintaining more accurate counts.
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